Paying For A Funeral: Pre-Arrangement

Generally, anybody can pre-arrange a funeral service. There are many planners, worksheets & templates out there which will help to capture the pertinent details – will this be a traditional funeral service or a cremation service? Would you like a viewing so friends and family will have the opportunity for closure and to say their goodbyes? Is the cemetery where you prefer to be laid to rest located near where you live, or out of state? These are some of the important questions that will need to be answered. Without advance planning, emotionally-shocked survivors are forced to deal with making relatively quick decisions about the final disposition of their loved one – many times resulting in family disagreements or years of guilt thinking, “Did I do the right thing? Is that what Mom would have wanted?”

Once the details of the funeral service have been ironed out, the next step is to arrange for some way to pay for it.

Imagine, hypothetically speaking, that you are contracting for a funeral service pre-arrangement. The cost of your funeral service totals $10,000 (which, in today’s prices, is NOT unreasonable). The legal technicalities are such that you cannot simply write out a check to ABC Mortuary, because you are still alive (therefore, ABC Mortuary is not able to take possession your money directly – until the day comes when you die and ABC Mortuary is in a position to “execute or deliver the product & service details” according to the terms of your contract). Generally, there are two ways to fund a funeral pre-arrangement: by trust, or by life insurance. The method of funding is usually dictated by the specific mortuary or funeral home where the pre-arrangement is contracted.

If your mortuary or funeral home uses a trust to pre-fund your plan: You have the ability to make payments into the trust until 100% of your service is paid. In many cases, you are the one who has control over determining the size and frequency of the payment; though the mortuary or funeral home may have a minimum required payment amount. The drawback to using a trust is that typically the feature of “locking in the cost of services against inflation” is not secure until you have paid in the entire 100%. If you die before you make all the payments, your family will be obligated to come out of pocket for the balance of the cost of your funeral service.

If your mortuary or funeral home uses life insurance to pre-fund your plan: Life insurance funding offers a few distinct benefits that a trust does not. First, the “locking in the cost of services against inflation” usually occurs when you start making payments, not when you finish. The life insurance policy funding your funeral pre-arrangement can typically be accessed by any mortuary or funeral home you find yourself using – not limited to where the contract is originally written. The drawback is there is an additional cost tied to how many years your payments are stretched out over (this has to do with the cost of insurance built into the life insurance policy; there will be a more noticeable difference for older – rather than younger – individuals). So the fewer number of years you can make payments, the better off you are. And, if you die before you make all of the payments, the entire cost of your pre-planned funeral service is covered by the life insurance death benefit (in a lot of cases).

Final Thoughts

Because most people don’t relish the idea of talking or thinking about death, a vast majority have not considered the idea of pre-arranging his or her own funeral service. To find yourself in the position of having to bury a loved one is emotionally overwhelming to begin with; imagine how facing a $10,000 bill in the space of a week to a week and a half feels! Because many families are in such a shocked state, the tendency to “emotionally overspend” happens frequently, as family members try to offset feelings of loss, confusion and grief.

For a simple, 1-page funeral service planning worksheet, email Shirley a request at Agent4Life@earthlink.net.